Points to Know Before Signing your Rental Agreement

 

With flourishing real estate market and people owning more properties than one, renting a property is a common trend these days. With prevalence of nuclear families along with the increasing rate of migration the trend has gained further popularity.

 

But feuds between the landlord and the tenant are also common. A ‘rental agreement’ becomes critical to avoid disputes at a later stage. It defines the duties and responsibilities of both the parties involved.

 

As per the Registration Act 1908, all rent agreements for tenure of one year and above have to be legally registered. Being a legally approved document, a registered agreement holds higher evidential value compared to a non registered one.

 

Usually to avoid payment of the stamp duty and registration charges mostly landlords go for a lease agreement of eleven months which can be renewed on termination.

 

To shun away from tax implications on the income generated from the tenant, landlords try and avoid signing a formal agreement. To protect his rights a tenant should never go for a house without a formal rental agreement. For a tenant it’s also a legal document which acts as a proof for tax benefits along with being a valid address proof when applying for a passport or PAN card.

 

Also, a lot of times landlords take the tenants for a ride and make agreements favouring them. Often the clauses are dressed up in complicated legal terminology and language. Landlords also use pre-made agreements downloaded from the internet or purchased from a vendor outside the court.

 

A tenant not vacating the property post termination of the lease tenure is not an uncommon scenario. In such a scenario a landlord either goes to the court which may take years for resolution or he resorts to other alternatives like harassment.

 

The essential elements of a lease are: 1. Parties involved – Lessor and Lessee, 2. Subject, 3. Terms/ clauses of lease, 4. Rent and security deposit, 5. Duration of lease 6. Termination clause. For general understanding a ‘lessor’ is the person who transfers the property or in most cases the owner or the landlord and ‘lessee’ is the person who accepts the transfer of property or in most cases the tenant.

 

Checkpoints for a Lease Agreement:

 

When registering the rent agreement the effective date should not be prior to the date on the stamp paper.

 

A tenant should verify the title deed and ensure that the owner has the lawful right to let out the property on lease or a provision may be incorporated to make the owner admit that he is lawful.

 

It should specify the rent amount, mode of payment, delay clauses, provision for hike if any.

 

The amount paid as security deposit, lock-in period if any and the procedure of its refund when the lessee vacates the property.

 

It may specify that the lessor should pay all statutory levies to the respective authorities from time to time.

 

It should specify the person responsible for paying the electricity and water bills – if its paid by the lessee then he should provide proper receipts to the lessor for his records.

 

It should specify duties and obligations for both the parties like the owner has a right to inspect the property but during reasonable timings or only after appointment, tenant can’t sublet the property or use it for commercial or any illegal work, procedure for repair work.

 

It should clearly mention the termination clauses for the agreement like tenure, notice period duration, lock-in period if any.

 

Forced Major Clause – eviction in case of act of god like earthquake, floods, storm.

 

It’s advisable to state arbitration provision to resolve disputes.

 

Security deposit is usually equivalent to two to three months rent. With increasing incidents of tenants hampering the property, now landlords have started charging more amount as security deposit. But while demanding high deposits landlords are usually ready to negotiate.

 

A landlord not returning the deposit or giving only a part of it is also a common trend. While signing the agreement a proper receipt should be demanded for the same along with inclusion in the signed agreement.

 

A rental agreement is a significant document which safeguards the interests of both landlord and the tenant. Therefore, it should be signed only after thorough reading and analysis of impact of each clause.